Egypt’s Financial Regulatory Authority (FRA) has officially entered the ring in a battle that fintech companies may not have seen coming. With Circular No. (7) of 2024, the FRA, under the direction of Dr. Mohamed Farid, has laid down the law, setting strict controls on the securitization of financial rights in Egypt, particularly for firms outside the traditional non-banking financial sector. The timing, just as the country’s fintech industry is hitting its stride, feels suspiciously like a move to remind everyone who’s really in charge.

The new circular aims to “protect” the financial market by creating clear rules around securitization activities, a tool fintechs have increasingly used to raise capital quickly. While fintech executives are likely rolling their eyes at yet another layer of regulation, the FRA insists it’s all in the name of market integrity and safeguarding the interests of all participants. Who could argue with that noble cause?

The Fine Print: No Loopholes Here

For fintech companies in Egypt already deep into securitization, this new circular means more paperwork — and fast. Any company looking for the FRA’s nod of approval to issue securitization bonds must now submit a detailed electronic file with all data on the financial portfolios to be securitized. The FRA has even designed specific forms for this purpose, because naturally, no company can be trusted to create their own formats.

And in a classic bureaucratic flourish, firms must also provide an update on existing securitization portfolios within one month of the circular’s release, which gives them until November 2024 to get their house in order. Should fintechs need to rearrange their portfolios or adjust their filings, they’ll need to move swiftly to meet the deadline. Some might argue this is the FRA’s way of weeding out the unprepared or the underfunded, but officially, it’s about ensuring “efficiency” in the market. One can almost hear fintech CFOs groaning at the prospect of complying with yet another regulatory hurdle.

A New Definition of Transparency?

The FRA, citing Article 41 bis (1) of the Capital Market Law, wants transfers of securitization portfolios to be “effective, complete, and not subject to any conditions.” It’s hard to argue with such pristine logic — unless you happen to run a fintech firm trying to navigate an increasingly complicated market. The transferor must guarantee that every asset in the securitization portfolio is real, viable, and not some pie-in-the-sky future promise. In short, no more creative accounting tricks.

But it’s not just about making sure that the assets exist; the FRA also demands full disclosure of all data and information contained in securitization portfolios. They’ve kindly overridden any confidentiality clauses that fintechs might rely on, making it clear that the rules about privacy don’t apply here. Fintech companies will now need to open their books to the FRA, revealing the inner workings of their securitized assets. If that feels like a little too much regulatory overreach, well, that’s because it is. But the FRA’s argument is that transparency is good for everyone, especially when it helps them keep tabs on the fast-moving fintech sector.

From Protection to Restriction

The new circular doesn’t stop with transparency. The FRA also demands that securitization portfolios be free of any prior transfers or pledges. In other words, fintechs can’t double-dip. The portfolios must be pristine, untouched by other financial commitments, and, crucially, not subject to any mortgages, loans, or credit guarantees. For fintech companies already using complex financial structures to maximize their fundraising options, this may feel like a step backward.

For the FRA, however, this is simply about ensuring that everyone plays fair. The Authority is determined to prevent the securitization market in Egypt from turning into a financial game of musical chairs, where portfolios are passed around, sold multiple times, or backed by invisible guarantees. Creating a database of securitized assets may sound like a good idea in theory, but for fintechs, it’s another regulatory hoop to jump through — and one that could stifle some of the creativity that has driven their growth.

The Reality of Securitization

One fintech already neck-deep in securitization is ValU, a leading digital financial services platform in the Middle East and North Africa. ValU recently completed its 11th securitization bond issuance, raising $22.3 million (EGP 1.091 billion). With a larger EGP 16 billion securitization bond program on the horizon, it’s clear that securitization has been a key tool in its capital-raising strategy. ValU has tapped into securitization as a way to turn its future receivables into present-day funding, allowing the company to expand its offerings and stay competitive in a crowded market.

But now, with the FRA’s new circular, ValU and others like it will have to adjust. Gone are the days of speedy securitization deals; fintechs will need to cross every “t” and dot every “i” before getting the FRA’s approval. While this might slow down the pace of fundraising, it could also provide some comfort to investors, knowing that the securitization market is under tighter scrutiny. After all, securitization in Egypt is still relatively new, and the FRA is determined to make sure it doesn’t spiral out of control.

The Bigger Picture: Regulation or Overreach?

In theory, the FRA’s regulatory push is about ensuring that Egypt’s financial markets remain stable and secure. But in practice, the new rules may make it harder for fintechs to operate efficiently. While the FRA has framed these measures as a way to protect market participants, there’s no denying that they represent a significant increase in regulatory oversight for fintech companies.

Fintechs thrive on flexibility and innovation — two qualities that aren’t exactly synonymous with government regulation. As the FRA tightens its grip on the sector, fintech firms will have to decide whether the benefits of securitization outweigh the growing costs of compliance. For some, the answer will likely be yes — after all, securitization is still one of the most effective ways for fintechs to raise large amounts of capital quickly. But for others, the new rules may force a rethink of their fundraising strategies.

As Egypt’s fintech sector continues to grow, the battle between innovation and regulation is only just beginning. For now, the FRA has the upper hand, but fintechs have proven resilient in the face of challenges before. Whether this latest move will stifle the sector or simply slow it down remains to be seen.